Monday trade on the Australian sharemarket

A look at how the Australian sharemarket started the week with Rob Henderson from nabCapital.

Transcript

ALI MOORE: As we heard earlier, the Reserve Bank says inflation will remain around 3 per cent for the next year, the top of the bank's target range. To look at the Reserve Bank statement today and how local markets moved, I spoke earlier to Rob Henderson at NabCapital.

Rob Henderson, thanks for joining us. The Reserve Bank's left the door open for another rate hike but, really, it all depends what happens in the next few months?

ROB HENDERSON: I think that's right, Ali. To us, there were three main messages out of the Reserve Bank statement today. The first one was that they've cut their growth forecast. That was mainly to take into account the effects of the drought. But they've also said that the increases in interest rates so far are having an effect in slowing the economy. Secondly, they've left the inflation rate forecast where they were in the last statement, in August, and they've also said that the medium term outlook for inflation has improved. That's good news, in terms of the outlook for interest rates. Thirdly, they have said they have a tightening bias, which really means, if there's a movement in the next six months, it's more likely to be up rather than down. However, they have said that they will now wait for two to three months, for a few months, to see whether the tightening so far is sufficient to get inflation back where they want it.

Our view would be that there's already signs of a slowdown. If that continues, it's probably good news for mortgage holders, in that rates have probably peaked already.

ALI MOORE: As they say, they're going to be watching over the next couple of weeks. Ironically, this week is quite a big week for economic data?

ROB HENDERSON: Well, that's very true. Tomorrow we have got our NAB business survey, and one of the key measures out of that survey the Reserve Bank has been watching is capacity use in the economy, because they continue to be concerned that the economy's running near full capacity. Last month we saw is a drop in capacity use. If that was sustained, obviously, that would be another bit of good news for interest rates staying on hold.

Then, on Wednesday, we've got the Westpac Melbourne Institute Consumer Sentiment Survey. We expect that to show a sharp drop, because that was taken after the Reserve Bank's increase in interest rates last week. We've also got wages and we've got house prices coming up ahead. Quite a lot of data, as you said.

ROB HENDERSON: That's right. Very nasty night in New York on Friday, with the overall metals prices dropping by about 4 per cent, with the fall in copper prices even larger, down about 5.5 per cent. That's led to substantial falls today in the likes of BHP, Rio, Zinifex those sorts of companies exposed to metals in the resources sector coming off. That pulled the index down about 18 points, but, still, it's up near record high sorts of levels.